Broadridge Financial Solutions - Best Risk Management Software Provider
Whereas previously investment managers might have looked at risk from a `check-the-box' perspective, today's regulatory environment and the growing sophistication of institutional investors is requiring them take it more seriously. There is, according to Bennett Egeth, President of Broadridge Investment Management Solutions, a need to generate consistent, reproducible risk reporting for regulators.
"Risk requirements have a ripple effect with managers having to explain how they arrived at the risk numbers being reported. They're detailing what their assumptions were in calculating risk, how those assumptions have changed (if at all) from the previous quarterly filings, and where the data came from that was used to generate the results. This is no longer a case of simply plugging in numbers. It requires having the right infrastructure," says Egeth (pictured).
There are, he says, a few key challenges with respect to risk management.
Firstly, the larger the fund, the more diverse the infrastructure – funds need to be able to gather data from multiple sources. Secondly, the different platforms and infrastructure a fund uses doesn't produce consistent data. This means that data normalisation is a real challenge, and that the broadest asset class coverage is crucial.
"Thirdly, once you get that data normalised, there is an interpretive component to how you report risk. The regulations are not always specific on the methodology and there tends to be a firm-by-firm interpretation of how to represent their risk numbers. That makes it challenging for both the fund and the administrators because no one wants to provide the interpretation, and everyone wants to provide the processing.
"Managers need to develop a risk management culture. They can't just wait until the end of the quarter and scramble together risk data. Without proper tools and a tested process, firms will not be able to meet current or future regulatory expectations," says Egeth.
To help hedge funds, Broadridge takes responsibility for collecting and scrubbing the data that is used for risk reporting and provides the governance on that data. "We tie the risk and the risk calculations into the trading workflow rather than making it an end-of-day process so that traders are aware, on an intraday level, of their risk and exposure.
"The ultimate goal of risk management needs to be to prevent a situation from causing a negative impact on the fund's portfolio, and not to provide a regulatory report detailing risk exposure. It's much more important to identify an event and curb your risk exposure before that event happens, and that's what we're focused on with the services we provide," explains Egeth.
"We provide an integrated solution that can consolidate at least three quarters of the product set that a manager uses. It significantly reduces their operational risk, and also removes `key-man risk'. This is helping us to win business from much larger hedge funds. Investors are only beginning to ask what capability managers have to produce a risk report throughout the day. While these reports may not actually be given to investors, it is crucial that the funds have the ability to produce them.
"As investors become more sophisticated, they will increasingly ask about intraday risk exposures, and the tools a fund has in place, rather than reliance on end-of-day, monthly and quarterly reports," comments Egeth.
On winning this year's global award, Egeth says: "We appreciate the this year's award, and view it as confirmation that many firms are recognising the importance of integrated technology solutions to enable them to reduce risk, improve the quality of their data and strengthen their infrastructure.